QUESTIONS ABOUT EFFICIENCY
Up until last year, the sale of a state prison to a private company was unprecedented. State and local governments have considered auctioning off all sorts of public property during the economic downturn, including even the state capitol building in Arizona.
Last year, the idea of selling prisons gained traction in both Louisiana and Ohio, as states became hungry for quick fixes to budget shortfalls. Gov. Jindal's plan in Louisiana came up short.
Legislators and state bureaucrats did not buy the idea of balancing a budget with one-time revenues from a prison sale. Louisiana State Treasurer John Kennedy compared the strategy to "a junkie selling the television set and radio to generate money for his next fix."
When Ohio Gov. John Kasich (R) took office last year, he proposed selling off five state prisons as part of a broader plan to privatize state government.
By the time Ohio received proposals last summer from private prison companies, only one offer was deemed worthy: the $72.7 million sale of the Lake Erie Correctional Facility. In a conference call with investors last fall, Hininger, the Corrections Corporation CEO, trumpeted the Ohio deal, noting, "Ohio has been a targeted state for CCA for several years."
Kasich's appointed chief for state prisons, Gary Mohr, previously served as a managing director at Corrections Corporation of America before assuming his government position last year. And Kasich's former chief of staff when he was a congressman, Donald Thibaut, now works as a lobbyist in Ohio for Corrections Corporation of America.
The state Department of Rehabilitation and Correction has pointed out that Mohr took the "extraordinary step of completely removing himself from this process," and did not have any part in examining the proposals for prison privatization last year.
State public policy groups have questioned how the sale of the Lake Erie prison shook out for taxpayers.
State officials have argued that selling and outsourcing the prison will generate $3 million in cost savings each year. But a report from Policy Matters Ohio calculated that selling the Lake Erie prison would actually cost more in the long term than if the state continued to own the property and pay off the construction bonds. That's because the state has to pay Corrections Corporation of America a $3.8 million annual ownership fee for housing state prisoners, in addition to the prisoner per-diem costs laid out in the contract.
According to the report, the prison sale would cost taxpayers $11 million more over the next 20 years than if the state would have continued to own the prison.
"A closer look shows that this deal has the potential to be a net loser for taxpayers right off the bat," the report notes.
Annette Chambers-Smith, the deputy director of administration at Ohio's Department of Rehabilitation and Correction, said the calculations in the group's report were "rudimentary." She said the calculation did not account for costs the state might have for capital improvements at the prison, and did not note the additional property taxes that will come from private ownership of the facility.
"In our case we were able to not only plug the hole in the budget, but then turn around and have property taxes," she said.
Just as cost concerns were raised in other states, groups in Ohio have questioned how much money is actually being saved by privatizing prison operations. Policy Matters Ohio said it found significant problems with the way the state calculated private prison "savings" in its report.
For example, to compare the costs at a privately run prison to a state prison, the state's department of corrections had to create a hypothetical state-run prison that would be the same size as a privately managed prison. The hypothetical example, however, contained central office and administrative staff costs that were not figured in for the private prison, making the state prison appear more costly, Policy Matters Ohio found.
In reality, the state is tasked with overseeing and administering private prisons in the correctional system -- creating an additional cost -- even if state employees aren't staffing the prisons.
Chambers-Smith, of the Ohio corrections department, acknowledged there had been inconsistencies with the state's cost calculations in the past. But beginning in 2010, she said the department has revised calculations to directly compare each area of service -- health care, utility costs, staffing.
"They don't get to cherry-pick their inmates," she said. "They have the exact same inmates there who were there when it was publicly operated."
At this point, it's unclear how many states will be interested in selling off prisons. Arizona, New Hampshire and Florida are considering privatizing the management of state prisons, but so far none have specifically broached the topic of a sale.
State corrections officials who were contacted in California, Pennsylvania, Virginia, Montana, Georgia, Texas, Illinois and New York all said they were not considering such prison sales at this time. In Illinois and New York, laws prohibit state inmates from being housed in private prisons, according to corrections officials.